The 80/20 Rule: Providing Value and Rebates to Millions of Consumers

The new health reform law, the Affordable Care Act, holds health insurance companies accountable to consumers and ensures that American families are reimbursed if health insurance companies don’t meet a fair standard of value. 

Because of the Affordable Care Act, insurance companies now must reveal how much of premium dollars they actually spend on health care and how much they spend on administration, such as salaries and marketing. This information was not shared with consumers in the past.  Not only is this information made available to consumers for the first time, If an insurance company spends less than 80% of premiums on medical care and quality (or less than 85% in the large group market, which is generally insurance provided through large employers), it must rebate the portion of premium dollars that exceeded this limit.^[1] This 80/20 rule is commonly known as the Medical Loss Ratio (MLR) rule.  

On June 1, 2012, insurance companies nationwide submitted their annual MLR reports for coverage provided in 2011 to the Department of Health and Human Services (HHS). Based on this data, insurance companies that didn’t meet the 80/20 rule will provide nearly 12.8 million Americans with more than $1.1 billion in rebates this year. Americans receiving the rebate will benefit from an average rebate of $151 per household. 

Under the new health care law, rebates must be paid by Aug. 1 each year. As a result, 12.8 million Americans will see one of the following:

• a rebate check in the mail
• a lump-sum reimbursement to the same account that was used to pay the premium if it was paid by credit card or debit card
• a direct reduction in their future premiums
• their employer providing one of the above rebate methods, or applying the rebate in a manner that benefits its employees.

Consumers in every state will also receive notifications from their insurance company about the 80/20 rule. Under the Affordable Care Act, insurance companies will send a letter to subscribers every year they miss the 80/20 mark. The letter will explain the purpose of the 80/20 rule, how far the insurance company fell short of this goal, and the percentage of premium it owes in rebates. In 2012, insurance companies that meet or exceed the standard in the 2011 coverage year will send a notice to consumers explaining the purpose of the 80/20 rule and notifying consumers that they met or exceeded the standard. Insurance companies will provide consumers with unprecedented information about the value consumers get for every dollar spent on premiums. All of this information will be publicly available on HealthCare.gov. 

The 80/20 rule is ensuring that insurance companies provide consumers value for their premium dollars. This rule works in combination with other consumer protections in the Affordable Care Act, like the program that reviews insurance companies’ rates to ensure that premium increases are not unreasonable. Insurance companies are now required to subject insurance premium rate increases of 10% or more to a new review process and justify these increases.  Most states now have the authority to determine whether these increases are excessive, while HHS reviews rates in states that do not operate effective rate review programs.  In making these determinations, HHS and the states closely review insurance companies’ 80/20 or MLR standards.

Summary of All Markets

Americans covered by insurance companies that failed to meet the MLR standard will receive an average rebate of $151 per family across all markets. The average rebate per family is expected to be $152 in the individual market, $174 in the small group market (which is generally insurance provided through small employers), and $135 in the large group market.. The states with average rebates above $500 per family are:  Vermont ($807),Oregon ($777) and Indiana ($503) in the large group market; Georgia ($811), Ohio ($783), New York ($632), Alaska ($622), and Illinois ($551) in the small group market; and Mississippi ($651) and Alabama ($582) in the individual market. 

Approximately 66.7 million consumers are insured by an insurance company that provides the required value for their premium dollars.  This means that a large majority of consumers are insured by companies that meet or exceed the MLR standard:  62% of consumers in the individual market; 83% in the small group market; and 89% in the large group market.

Individual Market

In the individual market, companies that did not meet the standard will pay $394 million in rebates to an estimated 2.6 million households this year.  

The average rebate in the individual market is approximately $152 per family.  Subscribers in Mississippi ($651), Alabama ($582), Maryland ($496), and Delaware ($461) are likely to see the highest rebates. 

Small Group Market (Insurance Provided Through Small Employers)

Over 1.8 million families, which include 3.3 million consumers enrolled in those policies, will see an average rebate of $174 provided to their employers in the small group market.  Insurance companies in the small group market will issue $321 million in rebates this year.  

The average rebate per family will be more than $500 in Alaska ($622), Georgia ($811), Illinois ($551), New York ($632), and Ohio ($783). 

Large Group Market (Insurance Provided Through Large Employers)

Insurance companies in the large group market are expected to return $386 million in rebates. Generally these rebates will be paid directly to the employers to be distributed to their employees according to employees’ contributions to premium,  benefiting approximately 2.9 million families or 5.3 million Americans.  Though fewer companies in the large group market owe rebates, at a national level these companies are providing roughly the same dollar amount in terms of total rebates.  This is because a larger number of consumers benefit from rebates in the large group market when compared to the individual or small group markets. 

States whose health insurers have the highest average rebate in the large group market are Vermont ($807), Oregon ($777), Indiana ($503), Colorado ($475), Maine ($463), and New Jersey ($359). 

Conclusion

For years, Americans have watched their premiums rise faster than their wages. Although these increases are partly due to rising medical costs and utilization of services, they are exacerbated by rising insurance company administrative costs (including marketing and salaries of CEOs) and profits, which contribute little or nothing to the care of patients or the health of consumers. 

Many Americans are working hard to ensure that their families have health insurance coverage, and they do not deserve to have their premium dollars wasted on excessive administrative costs and profits. The Affordable Care Act and the 80/20 rule guarantee this right for consumers, and the over $1.1 billion in rebates provided through this rule show that insurance companies can no longer pass excessive administrative costs and profits on to consumers.   

Appendix I: Total Rebates in All Markets for Consumers and Families, by State  

Totals

Appendix II: Total Rebates by Market and State for Consumers and Families: Table shows state by state rebate data for the individual market, small group market, and large group market.

Note: People using assistive technology may not be able to fully access information in the data table above. Instead use the accessible data tables below: 

Total Rebates by Market and State for Consumers and Families: 

Individual Market | Small Group Market | Large Group Market

Individual Market

Small Group Market

Large Group Market

Posted on: June 21, 2012